Portfolio traders manage portfolios of stocks and/or other financial instruments and, when they trade, they often times make large dollar value trades in a number of different stocks or other instruments. Portfolio traders are typically fund managers or traders and brokers acting on behalf of a large institution, such as a mutual find or a money-management firm. Portfolio traders employ a variety of different trading strategies to manage their portfolios, and they use program trading to implement these strategies.
A program trade is a series of related purchases or sales of a group of securities where the related purchases and sales satisfy parameters for a minimum number of securities and a minimum market value. The specific parameters of a program trade are defined by market regulations, which currently define a program trade as the purchase or sale of a basket of at least fifteen securities with a total market value of at least one million dollars.
Several limitations exist in prior systems in which program trade orders are executed. For example, in some prior systems, where the portfolio trader executes his program trade orders on an exchange in the market place, the portfolio trader is required to execute the orders during the trading day. If the size of the trade print is large enough, executing this order during the trading day will likely have the negative effect of moving the market away from the position of the portfolio trader that executed the order. This is due to the fact that trades executed within the marketplace are reported immediately. Furthermore, program trade orders executed on an exchange during the trading day run the risk of being broken up due to interaction with the marketplace. Such market interaction poses a serious issue for a trader because a trader wants the program trade orders that make up the program trade to each cross cleanly at a single price. With market interaction, an individual program trade order that is part of the program trade gets separated into a matched portion that crosses and an unmatched portion which must be executed manually. The result is that the individual program trade order ends up getting traded, potentially, at multiple prices.
To remedy this problem, portfolio traders often execute such program trade orders off the exchange (e.g., at an institutional trading desk or within an alternative trading system such as a crossing network). While this method resolves the trader's problem by keeping large orders from interacting with the marketplace and from having execution of the order reported out immediately and potentially negatively moving the market, such order executions must still be reported. Marketplace rules require that executed trades be reported to an exchange or comparable public market center. Program trade orders that are executed off an exchange typically are reported either at the end of the day as aggregated program trade totals, with the details of the execution being reported over the next several days, or reported the next morning as individual trades.
Crossing systems have been developed where program trade orders may be executed on a public exchange, and execution of such orders is captured for market reporting. For example, the New York Stock Exchange (“NYSE”) offers a special trading session (i.e. Crossing Session II) where program trade orders may be received and executed on the NYSE at the end of the day, after the market has closed.
Accordingly, there is a need for a crossing system that allows traders to submit their program trade orders throughout the trading day at the trader's convenience for execution at a pre-specified time so that these orders do not interact with other orders on the exchange.